MGEA01H3 Chapter Notes - Chapter 10: Marginal Revenue, Demand Curve, Price Discrimination
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MGEA01H3 Full Course Notes
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Monopolist: a firm that is the only seller in a market, the demand curve for the firm"s product is simply the market demand curve. Unlike a perfectly competitive firm, a monopolist faces a negatively sloped demand curve. A monopolist faces a tradeoff between the price it charges and the quantity it sells. Marginal revenue (cid:1)(cid:2) = (cid:4) (cid:7) (cid:8)(cid:2) = (cid:1)(cid:2) (cid:7) (cid:4) (cid:7) (cid:7) = (cid:4: the revenue resulting from the sale of one extra unit of the product (cid:9)(cid:2) = If price continues to fall, tr will start to fall and mr will become negative: demand is elastic ( > 1) when mr is positive, demand is inelastic ( < 1) when mr is negative. To maximize profits: the firm should not produce at all unless market price is above avc. If the firm does produce, it should produce a level of output such that mc = mr. A profit-maximizing monopolist has p > mc.